Feb 11 (Reuters) - Cisco Systems posted quarterly adjusted gross margin below market estimates on Wednesday, as the networking equipment provider grapples with the fallout of a global memory price increase, sending its shares down 7% in extended trading.
The rapid build-out of artificial intelligence infrastructure by U.S. tech firms such as OpenAI, Alphabet and Microsoft has absorbed much of the world's memory chip supply, which has lifted prices as manufacturers prioritize components for higher-margin data centers over consumer devices.
Cisco provides the essential high-speed networking infrastructure, with switches and routers powered by multiple kinds of memory chips, that underpins data centers running AI applications.
"Strong demand and accelerating revenue were clear positives for Cisco this quarter, but compressed margins definitely took some shine off the report," said Jake Behan, head of capital markets at Direxion. "The rate at which Cisco can monetize any order backlog and turn that into real revenue will be a key focus for the second half of the year."
The networking equipment maker posted adjusted gross margin of 67.5% for the second quarter, below the analysts' average estimate of 68.14%, according to data compiled by LSEG.
In response to recent memory price increases, Cisco has already raised its own prices and is also revising contractual terms with partners and customers, CEO Chuck Robbins said on a call with investors. Shares of the company have risen over 11% so far this year after a 30% jump in 2025, as Wall Street bets big on its potential to benefit from robust spending on AI with its data center networking products.
"Given the strong demand for our Silicon One systems and optics, we now expect to take AI orders in excess of $5 billion and to recognize over $3 billion in AI infrastructure revenue from hyperscalers in fiscal year 2026," Robbins added.
Cisco now expects 2026 revenue between $61.2 billion and $61.7 billion, compared with its prior forecast of $60.2 billion to $61 billion.
The company reported total revenue of $15.35 billion for the quarter ended January 24, beating the analysts' average estimate of $15.12 billion.
(Reporting by Juby Babu in Mexico City and Arsheeya Bajwa in Bengaluru; Editing by Alan Barona)
